EMS IPO - Investment Rationale, Issue Details, Business Strategies, Financials, Key Risks: HDFC Securities

HDFC Securities Retail Research

EMS Ltd. will launch its initial public offering tomorrow and will be closed on September 12.

The water and sewerage infra player has fixed a price band of Rs 200 to 211 Apiece for its Rs 321-crore IPO.

The Issue comprises of a fresh issue of equity shares, aggregating up to Rs 14,624.00 lakhs by EMS and an offer for sale of up to 82,94,118 equity shares, by promoter Ramveer Singh.

The shares of the EMS will list on both the BSE and the NSE.

The Offer for Sale

The company will not receive any proceeds from the offer for sale by the promoter selling shareholder and the proceeds received from the offer for sale will not form part of the net proceeds. The promoter selling shareholder will be entitled to the proceeds of the offer for sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Issue

The net proceeds of the fresh issue, i.e. gross proceeds of the fresh issue less the issue expenses apportioned to EMS are proposed to be utilised in the following manner:

• Funding of working capital requirements of EMS; and

• General corporate purposes.

About the company

EMS is in the business of sewerage solution provider, water supply system, water and waste treatment plants, electrical transmission and distribution, road and allied works, operation and maintenance of wastewater scheme projects and water supply scheme projects for government authorities/bodies.

Wastewater scheme projects include sewage treatment plants along with sewage network schemes and common effluent treatment plants and water supply scheme projects include water treatment plants along with pumping stations and laying of pipelines for supply of water (collectively, 'projects').

The treatment process installed at sewage treatment plants and common effluent treatment plants is compliant with Ministry of Environment, Forest and Climate Change of India norms and the treated water can be used for horticulture, washing, refrigeration and other process industries.

Competitive Strengths

• In house designing, engineering and execution team.

• Strong execution capabilities with industry experience.

• Use of traditional technologies in the construction and installation of WWSP or WSSP.

• World Bank Funded Projects

• Experienced promoters and senior management team.

• Robust order book

• Scalable and asset light business model supported by our strong financial position

Key Concerns

• Changes in laws and regulations relating to the sectors/areas in which EMS operate.

• The continuing effect of the Covid-19 pandemic;

• Inability to identify the new premises may adversely affect the operations, finances and profitability of the company;

• Uncertainty regarding the real estate market, land prices, economic conditions and other factors beyond EMS’s control;

• Inability to identify or effectively respond to consumer needs, expectations or trends in a timely manner;

• Projects assigned to EMS are primarily through a competitive bidding process, sometimes it may not be able to qualify for and win projects.

• Ability to successfully implement growth strategy and expansion plans, and to successfully launch and implement various projects;

• Delays in the execution of the projects, premature termination of the projects for which EMS may not receive the payments;

• Volatility of loan interest rates and inflation;

• Failure to keep pace with rapid changes in technology

• Business is capital intensive and EMS may experience insufficient cash flows to meet required payments on its working capital requirements;

• Fluctuations in operating costs;

• Ability to attract and retain qualified personnel;

• Conflict of Interest with affiliated companies, the promoter’s group and other related parties;

• Changes in political and social conditions in India, the monetary and interest rate policies of India and other countries;

• General economic and business conditions in the markets in which EMS operates and in the local, regional, national and international economies;

• Changes in government policies and regulatory actions that apply to or affect EMS’s business;

• The performance of the financial markets in India and globally;

• The occurrence of natural disasters or calamities; and

• Failure to successfully upgrade products and service portfolio, from time to time.

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